Do you know what is the number 1 mistake forex traders make? You will be so totally wrong in thinking that its to do with trading systems.
FXCM conducted a research to find out what is the number one mistake forex traders make and what they found out was quite shocking and revealing as well.
For FXCM to do this was really an easy task because they had all the information they needed: live account data for all traders.
So what they did was analyse 12 million live trades to find out what was the biggest mistake forex traders made.
What Do Forex Traders Do Wrong?
This was the question FXCM wanted and answer for and by analysing 12 million trades, this is what they got:
This chart below simply shows that forex traders were winning more than 50% of the trades they placed for each of the currency pairs shown on the graph below:
So the question you should be asking is this:
- if forex traders were winning more than 50% of the trades they placed, the would be successful right?
The answer is NO!
You see, winning percentage is just one part of the equation, the two next biggest questions are:
- how much they were winning on each trade?
- how much they were losing on each trade?
These two questions really bring us to the number 1 mistake forex traders make and this graph show it all:
The chart above simply indicates that the average profit made for each trade was very quite small in comparison to the trading loses made. Or to put it in another way, traders were losing more money than they were making.
So what do you think is the problem here? Trading Risk Management.
If you are losing more than you are winning, that is obviously a trading risk management problem.
If there’s any lessons to be learnt from this research, it simply highlight the facts that we all well know today:
- bad trading risk management is the number 1 factor that many forex traders loose money and if traders where to control this aspect of their trading, they can be really profitable and successful.
- forex traders should learn to cut loses short and let trading profits run
This is not rocket science but if there’s anything worth spending time or an doing best, these two should be the ones.
If you can’t deal with emotion, get out of trading.” J. Welles Wilder Jr
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